#133 Starbucks in Japan – Sometimes (but not very often), instinct works!
One summer night in 1996, Howard Schultz, founder and now Executive Chairman of Starbucks, the Seattle-based coffeeshop giant, had dinner with the company’s newly acquired Japanese partner. It was the night before the opening of the first ever Starbucks in Tokyo. In fact, it was the first Starbucks opening outside of North America altogether! The weather was hot and humid, and Schultz realized that Starbucks didn’t have any cold drinks! Hot coffee would really not be attractive to Japanese consumers at that time of the year. He also remembered what consultants had told him about the Japanese market months earlier – the no smoking policy would not fly in Japan, the cost of real estate was too high for a chain of coffeeshops, and no Japanese customer would ever want to be seen drinking coffee from a paper cup in the streets. Instinct had driven Schultz to ignore the consultants’ advice and to try anyway. Besides, there was a direct flight from Seattle to Tokyo, so what could go wrong?! But that night, he was convinced that he had made the wrong decision. Wanting to prepare everyone for a disastrous business opening, he asked the interpreter to give his Japanese partner the bad news.
After a difficult night, Howard Schultz arrived at the store without much expectation, only to see hundreds of customers lining up around the block, waiting to get their first cup of Japanese Starbucks coffee! Only later he found out that the interpreter had lied to Starbucks’ Japanese partner. Instead of translating what Schultz had really said, he had promised the largest and most exciting store opening ever.
As a professor of International Business and a consultant on international market entry, it pains me to admit, but sometimes instinct works!
(Based on Guy Raz’s live interview with Howard Schultz on 9/27/2017 in Seattle).
January 12, 2018 @ 11:20 pm
Cultural differences don’t always mean values differences.
BG
February 11, 2018 @ 10:33 pm
This case on Starbucks entry into Japan is very relevant to many of the discussions that we have had in class. We’ve learned a lot about different companies’ expansion into international markets, and in many cases, things do not always go smoothly. One of the first cases that comes to mind that we learned about was Walmart’s attempt to enter the German market. After determining they were ready to internationalize, Walmart failed when it came to foreign target market selection. After choosing Germany, they did not adapt to the differences in culture and thought German customers would adapt to them. This was not the case.
I found this Starbucks example to be particularly interesting, because it shows a case where a company was successful on its first attempt to enter a foreign market. Despite having no international experience, and being told by a consultant that Japan was the wrong market choice, the company transitioned well and had great success. Interestingly enough, Starbucks failed to enter the Australia market later on in its history. It just goes to show how different foreign markets are, and how important foreign target market selection and market entry mode choice are.
March 15, 2018 @ 8:14 am
The early and vast success of Starbucks in Japan is one of the very unconventional cases were a product could be placed successfully the first time in a new country and very different market. Back in history Japan hasn’t had a coffee drinking culture and Starbucks acted as game changer. That is also pretty comparable in other Asian countries such as China and Korea which also have no big history with coffee but tea. Whenever I go there for business trips I wonder about the amount of Starbucks shops and how crowded they are. You can find them meanwhile at every corner and often inside business buildings. It’s very popular and especially younger generation people spend a lot of time there – not just to pick up a coffee but to work, meet with colleagues, hang out and meet with friends.
This example shows that a product which might be seen as not fitting for a market can even lead to a change of the community. I wonder how this could be predicted in a comprehensive market entry plan. I think the risk was seen as high before but they could afford to fail which made it the right choice to simply try it.
March 15, 2018 @ 11:43 am
From the international business perspective, this story related to the successful entry of Starbucks into the Japanese market at its first international attempt in August 1996, is very interesting since, over the time many famous companies (brands) failed partially or even completely to develop business strategies in foreign markets. We all probably ask ourselves, how this was possible?
I have remarked, based on the observation of my Japanese friends, that as consumers Japanese people like to try new things and would not hesitate to stand in a long line in front of a store in order to be one of the first customers. This probably explains why the Seattle-based chain made such a big splash when it arrived back in the 90’s in Japan. However, with the current market situation where products or services appear and disappear overnight, a company needs more than just novelty to survive for more than twenty years. Today, Starbucks Japan has become the largest coffee chain in Japan. With a market share of 48.0% and an annual growth of 7.3% (Starbucks Report, 2014), more than just intuition was required to succeed.
According to many international market analysts, while many businesses fail to understand to which extend Japanese culture cherishes traditions, the secret of the long-term success of Starbucks in Japan is related to the balance that the coffee chain has found between maintaining the trendiness of being an American brand and adapting (Murai, 2017) its products while respecting the culture of the local community to still offer an unbeatable experience.
Starbucks was the pioneer coffee chain that offered a wide range of customizable products or that implemented an alternative non-smoking environment compared with their competitors (Murai, 2017). And although they have gained the reputation of a café that offers innovative products that fulfill customers’ demand, they have realized that it is not just about the product, but the experience as well. Starbucks is consistently renovating their stores from its standard-issue decor and often uses local furniture, tatami-floored rooms (Yam, 2017) or exceptional locations with views over gardens from where seasonal chances can be observed, in order to create that ‘third place’ for customers, that would satisfy also their other motives for visiting a café: to meet with friends, study, or conduct a quick business meeting.
Howard Schultz market intuition has been probably enough to choose Japan for the first Starbucks’s international business experience, however the way the American coffee retailer tried to understand what customers ask of their brand and how they catered their products and services to fulfill customers’ expectations is what made them successful in the dynamic Japanese market.
References
Murai, S. (2017, August 23). For foreign companies in Japan, adapting to local culture seen as key to success. Retrieved March 14, 2018, from https://www.japantimes.co.jp/news/2017/08/23/business/foreign-companies-japan-adapting-local-culture-seen-key-success/#.WqlhVbMiFOQ
Starbucks Report (2014). Retrieved March 14, 2018, from http://www.starbucks.co.jp/assets/images/ir/images/library/fy13-analyst-meeting.pdf
Yam, K. (2017, August 18). This Stunning Starbucks In Japan Is A Dreamy Piece Of History. Retrieved March 14, 2018, from https://www.huffingtonpost.com/entry/starbucks-in-kyoto-japan_us_5995bb13e4b0acc593e5f7ac
April 15, 2018 @ 10:29 am
Well, though I prefer to drink my coffee in one of the Viennese coffeehouses living in Austria (Japanese drink traditionally tea in kissaten as you know), I consider Starbucks as one of the most interesting benchmarks when it comes to internalization and as a ‘true role model’ choosing the right entry mode.
No doubt, in the night before Howard Schultz’s first market entry in Asia, he was not only nervous but also lucky as revealed afterwards. A better night he could have had by assessing Starbucks’ readiness in the pre-phase more systematically instead of racking the brain about individual expert opinions. As the literature shows, systematic market entries increase the performance and outlook for success significantly – especially when they are assessed in the pre-phase. When the readiness is revealed and aligned with the target market, the entry mode is save and an internationalization process needs not to be or become a blind flight.
Though it was no happenstance that Schultz had ironically in a country of preferred tea drinkers (37.4% favor coffee vs. 62.6% tea)* success: Porter’s five forces had proofed the mode right, decisive market attractiveness factors of his experts were probably right, and the access barriers revealed finally as irrelevant or were adoptable. Thankfully, no market access barrier necessitated the abort of the entry, or to change the mode, and that was Howard Schultz’s luck he could have forced by a preceding assessment challenging his marketing mix with respect to the political, economical, societal, and technological factors in Japan more systematically before.
The second reason, why it was no happenstance that Starbucks could enter Japan sustainably, is to explain by the firm’s ability to learn from and commit to other cultures (maybe the interpreter felt this). Managers must respond to global demands, integrate diversity and disperse operations. The many adoption examples of Starbucks (meanwhile there is of course a full range of developed tea tastes available as well) make assume that the global mindset of the managers has been high and the flow of knowledge creation from consumers and the markets intact. The firm may rely on a high responsiveness to markets which is essential for every firm’s global performance.
No doubt, Howard Schultz learned a lot about external environments and entry modes in this sleepless night as the further history of Starbucks shows: it leads wholly owned subsidiaries in some countries, has joint ventures in others, uses licensing agreements in further ones, or even “mode combinations” for same markets. The variety is the result of the different external environments and Starbucks’ meticulous assessments for the right entry modes after the first potential accident in Japan. [see full story in Apfelthaler, 2017]
Best regards, Markus
What the literature says to the case:
Selection is something corporates must get right. (Brewer, 2001)
Market access barriers must be addressed. (Alexander & Korine, 2008)
Managers must respond to local demands. (e.g. Rosenzweig & Singh, 1991)
Systematic assessment relates to performance. (Yip. et. al., 2000)
Readiness must be assessed in the pre-phase. (Tan et. al., 2007)
The entry mode must … (Apfelthaler, December 2017)
All citations and sources are to find in:
Apfelthaler, G. (2017). International Market Entry Strategies. A Practical Approach. First Edition. December. Thousand Oaks, California.
*Coffee or Tea? A Picture of World Consumption:
Article by Bean & Beyond (2014) about a research study of Euromonitor: http://www.cafedecolombia.com/bb-fnc-en/index.php/comments/coffee_or_tea_a_picture_of_world_consumption
September 2, 2018 @ 9:46 pm
Many people, in business and elsewhere, believe that it is senseless to rely on emotional, fallible and irrational feelings in decision making, as opposed to scientific thinking. However, according to Valarie van Mulukom (2018), a research associate in psychology, emotions are a form of information processing. She goes on to explain that the brain is basically a large predictive machine, constantly contrasting incoming sensory information, current and stored knowledge and experiences, and is capable of making accurate predictions of the future. Laymen may call this “intuition”, scientists call this “predictive processing framework”.
CEOs of companies long before Starbucks followed their intuition, in fact I believe it to be a business asset. Among those CEOs that did something truly daring, and succeeded, are Adam Werbach, who at the time was president of the Sierra Club, but left to consult for Wal-Mart and changed the company’s culture by introducing its Personal Sustainability Project, something dear to his heart. Then there is the iconic Henry Ford who did the unimaginable at the time and doubled his employees’ wages. By doing so he decreased turnover, increased productivity and created a customer base that had more disposable income to purchase a car. Bill Allen of Boeing in the 1950’s went out on a lark and convinced his board to invest $16M on a commercial airline. We all know how that turned out!
Howard Schultz had a little help when deciding to take the leap of faith and bring Starbucks to the Japanese market. Shultz received a letter in 1992 (4 years before opening his first store in Japan) from an entrepreneur named Yuji Tsunoda, also a board member of Sazaby Inc. They began corresponding within one week, which led to the decision to enter the Japanese market. At the time, Starbucks was conducting an international target market analysis and this opportunity proved to be just what Shultz need. His intuition kicked in and jumped right in, entering the Japanese market through a joint venture with Tsunoda, naming him president of Starbucks Coffee Japan Ltd. In October 1995. (Yoshida, 2002). Selecting a joint venture market entry strategy provided Schultz with instant access to resources, entrance to networks, knowledge of the market, and most importantly, knowledge and experience with the legal and regulatory environment, something of which Schultz had no knowledge. (Apfelthaler, 2017). Today, there are approximately 1,300 stores in Japan, now the third biggest market in the world and opens nearly 100 new sites each year.
So in my opinion, if you want to forge new markets, imagine the future and follow you instincts. If you don’t, you just may be following the leader.
Apfelthaler, Gerhard (2017, December); “International Market Entry Strategies, A Practical approach”; First Edition;Thousand Oaks, California, United States.
Bonnell, Sunny (n.d.); “4 Leaders Who Won by Following Their Instincts (Despite being told they were crazy); Inc.com; Retrieved from: https://www.inc.com/sunny-bonnell/how-to-follow-your-instincts-in-business-even-when-people-say-youre-crazy.html
Sather, Jeanne (1996, September 15); “Starbucks takes its shot in Japan”; Puget Sound Business Journal; Retrieved from: https://www.bizjournals.com/seattle/stories/1996/09/16/story4.html
Van Mulukom, Valarie (2018, May 22); “The science behind going with your instincts”; World Economic Forum; Retrieved from: https://www.weforum.org/agenda/2018/05/is-it-rational-to-trust-your-gut-feelings-a-neuroscientist-explains
Yoshida, Reiji (2002, Jan 19); “Coffee shops on different tracks in Japan, Seattle-style outlets can only agree that taste, staff make all the difference”; thejapantimesnews, Retrieved from: https://www.japantimes.co.jp/news/2002/01/19/national/coffee-shops-on-different-tracks-in-japan/#.W4w3Z-hKiUk
March 30, 2019 @ 9:37 am
Starbucks in Japan
Roughly 18 years has passed since Starbucks opened up their first business outside North America: Japan. Nowadays, Starbucks Japan has turned into the biggest espresso chain in Japan with approximately 48.0% of the market share. Their store areas have developed by around 7% per annum over the previous decade—around 71 new stores every year, and now more than 1000 stores altogether.
Their vigorous growth plan forecasts a target of 10% yearly development in their areas (around 100 new stores each year) in the coming few years. Also, income has improved by 14.7% in the previous five years. It appears that in excess of a couple of Japanese shoppers are picking Starbucks over the other coffeehouses, like Saint Marc and Tully’s Coffee (Richardson & Gilmartin, 2010).
Obviously, Starbucks Japan is an extraordinary example of overcoming adversity. Be that as it may, the inquiry remains: Why? For what reason do we pick Starbucks over other coffeehouses? For what reason would we say we will hold up in that endless line to pay an exceptional cost and after that battle to locate a vacant seat?
Indeed, the mystery may lie to be decided Starbucks has found between keeping up the popularity of being an American brand and adjusting to the Japanese market. From the minute Starbucks set foot in Japan, development and a new American viewpoint were at the core of their procedure.
Finally, Starbucks has understood that it isn’t just about the item, yet the experience too (Westwood, 2013). Their utilization of computerized showcasing through web-based life stages has extended their Starbucks fan network. They are reliably over patterns and remodeling their stores to keep up the look and feel of a stylish American Bistro.
References
Richardson, J., & Gilmartin, H. (2010). The Coffee Boys’ step-by-step guide to setting up and managing your own coffee bar: How to open a coffee bar that actually lasts and makes makes money
Westwood, J. (2013). How to write a marketing plan. London: Kogan Page.
April 6, 2019 @ 1:59 pm
In my point of view Starbucks and its success in the last decades is a great example of inspirational entrepreneurship and a best practice example about establishing a worldwide known and international brand. Thinking about my trips around the world, I am always seeing Starbucks and mostly the stores are crowded with customers.
Of course, it seems true, that Howard Schultz and Starbucks did not have made a great analysis about how to enter the market in Japan, but I think it was not just a lucky punch. First, I suppose in 1996 there have not been a lot of U.S. based companies established in Japan. For that reason, it was something special, if an American brand is coming to a foreign country and spreading out some American lifestyle. I can remember quite well about my first visit to Starbucks in Austria – although I was not well informed about Starbucks (and not that big coffee drinker at that time), I had to stop and enter the shop for a coffee. This is bringing me to my second statement, that Starbuck is that special because it creates a so called third-place experience (first-place is home and second-place is work) which is, at least in my point of view, their core product. Customers are staying connected with Starbucks because of that third-place experience. In my point of view this feeling is something which is working in different international countries.
According to the book of Howard Schultz “Onward – How Starbucks Fought for Its Life without Losing Its Soul”, Starbucks has established in China a special Innovation Coffee House, where they test new concepts for the Chinese market as well as they are testing new products for the local market (e.g. using ingredients, which are common in the Chinese culture like green tea or black sesame). Looking at the development of coffee houses in China over the last years (1999: first coffee house; 2009: 700; 2019: 3.521), it seems that Starbucks is now more “scientific” in terms of going international.
April 15, 2019 @ 9:43 pm
Starbucks is an extremely successful coffeeshop chain based out of Seattle. However, even they run into challenges when expanding overseas. Their entry to the Japanese market is a great example of facing international challenges. Their opening shop in Tokyo began in a hot and humid season, but unfortunately Starbucks was not offering any cold drinks which would have been most appropriate for the weather. As can be imagined, the consumers were interested in hot drinks. Further exasperating the entry to the market was the non smoking policy inside of Starbucks, cost of real estate, and paper cups. Consultant has explained to CEO Shultz that the culture in Japan would require changes, but Shultz insisted on trusting his instincts. While this case, is a great example of adjusting a business to meet a new market, Shultz refused and when he arrived there was a long line of customers! I guess the moral is that sometimes good business instinct trumps all the research! However, I wonder if integrating the Starbucks culture with the Japanese culture such as allowing smoking or having cold drink would have only multiplied the success.
July 1, 2021 @ 10:13 pm
In my opinion this article shows that despite all the dissenting voices, trusting one’s instinct can work well. However, I must admit that the high success of Starbucks in the Japanese market is a very special and rare case where introducing a new and different concept/product in a foreign market works out successfully This could also have turned out as a total failure as Howard Schultz expected it the night before. It is not without reason that conducting market research, analyzing the market participants and collecting information about the foreign market is essential before entering an uncharted territory. Underestimating or even ignoring cultural and economic differences often leads to a company’s failure when trying to enter a new market. Examples for that are the failed introduction of Tesco in the USA or Wal-Mart at South Korea.
To conclude, from my point of view Starbucks is a great example for a company that has succeeded in developing a highly successful and international brand. Further it also shows that trusting one’s instinct not always has to turn out in failure.
December 3, 2021 @ 5:58 am
While this would not be surprising for a Starbucks grand opening to be that successful in this day and age (2021), it is interesting to see that this was in 1996. In our last class we looked at how globalization has changed over the past few decades and with technology advancements how easy it is to be a successful business from anywhere in the world. If we look back to the late 90’s, this was a time when the internet (Netscape) became available to around 100 million users. I am not certain that Netscape was a contributing factor to the grand opening success in Japan, but during that time frame, it is a possibility. Another interesting point was the concerns of cultural differences and not “forcing a culture” in another country. In this article, Japanese consultants tried to advise, “the no smoking policy would not fly in Japan, the cost of real estate was too high for a chain of coffeeshops, and no Japanese customer would ever want to be seen drinking coffee from a paper cup in the streets”, however in the end, this did not matter. I am sure not many companies can get away with not listening to the consultants and still see so much success, but in this case I guess “sticking to ones guns” really paid off.
December 5, 2021 @ 10:12 pm
This case with Starbucks entering Japan is very interesting. We learn with international businesses that foreign companies don’t work the same way they do in the states. It was smart of the CEO to assume that launching a store the same way we do here would not go as well as expected. While it was a risky move for the translator to trust his instinct and be optimistic to the Japanese clients, he knows that market better. He must have realized that while the Starbucks model is not traditional to Japanese customs, it is such a popular company that consumers would be excited regardless.
December 11, 2021 @ 8:12 am
Based on the case, Starbucks did not do enough research and ignored the suggestions of consultants, but it got a big success on the first store in Japan. It is a successful example, but it could not be a good example for studying. If there are not enough research and analyze the market before entering a new international market, the rate of success is much less than the one of fail. Like Starbucks in Australia, Starbucks entered the Australian market in 2000 and had nearly 90 locations in 2008. However, faster development did not make Starbucks get success. It discovered the local customers did not like their coffee, because the tastes were not fit Australian, and the cost of Starbucks was higher than the local cafes. The Australian coffee market is very huge, so Starbucks did not want to give up it. Therefore, after the fail in Australia, Starbucks do not only close their local stores, but also look for the reasons of the fail. Starbucks made the target customers in Australia from local people to tourists. Now, there are 39 locations in the Brisbane, Melbourne, Gold Coast and Sydney areas, catering to tourists who visit those parts of the country. Therefore, it is very important for the international companies to do a lot of research and adapt the local culture before entering a new countries.
July 5, 2022 @ 5:39 pm
As this article perfectly points out, instinct can be a great tool in decision-making. Starbuck stood by their principles and their business idea. Drinking from coffee cups was not always popular in the US either, but the concept of enjoying a cup of coffee on the go found endorsement. The same principle applied in Japan back then. This indicates that some parts of society are capable and open to adapting their sometimes-traditional beliefs to their modern environment. Starbucks should, however, have done more extensive market research to better understand the market and its environment. For the hot summer period in Japan, the barista company could have additionally integrated cold drinks into their menu. This way, they could have minimized the risk of failure due to uncertainty. In my opinion, a healthy mix of instinct and research sets a good foundation for success.